Sydney can be Asian financial hub: Forrest

Peter Trute, AAP Senior Finance Writer

Mining billionaire Andrew Forrest says Australia will be left behind if efforts aren't made to make Sydney a strategic trading centre for Chinese currency.

Australia and China formalised a deal this week to allow direct conversion between Australian dollars and Chinese yuan, also called renminbi.

The deal makes the Australian dollar only the third currency globally, after the US dollar and Japanese yen, that is converted directly to yuan.

With $128 billion in trade between Australia and China in 2012, the deal can substantially reduce transaction costs and currency fluctuation risks for companies doing business with China by ending the need to transact in US dollars.

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Mr Forrest, chairman of Fortescue Metals, said he was encouraged by the developments as the free exchange of currency between the two countries was critically important.

Speaking at the Australia-Hong Kong Renminbi Trade and Investment Dialogue in Sydney, Mr Forrest urged financial institutions and policymakers to develop Australian financial market capacity for trading in yuan.

"Sydney, and in particular Australia through Sydney, has a wonderful opportunity to further enhance its reputation as a centre of international currency trading and banking," he said.

The businessman said Sydney would have to compete with established financial hubs such as Shanghai and Hong Kong as the yuan grew in importance as a global currency standard.

"If you don't you will see the emergence of financial centres in other parts of Asia and other parts of the world very strongly trading in renminbi, and it won't be Sydney and it won't be Australia."

ANZ Bank chief executive Mike Smith told the forum Sydney should be developed as a regional financial centre as China had plans to conduct a significant proportion of its international trade by 2015 in yuan.

Currently only one per cent of Australia's international trade is conducted in the Chinese currency, leaving room for enormous expansion as new products and capabilities are put in place.

HSBC Hong Kong chief executive Anita Fung told AAP the opening of currency conversion between Australia and China benefited not just major ASX-listed firms but also small and medium businesses that trade with China.